Disclose Everything

SEATTLE/BUSINESS—If there’s a crud in your company that you haven’t or can’t clean up immediately, disclose it to investors early in the fund-raising process. The later you reveal it, the harder it is to inform, and the more it will harm your credibility.

For example, Garage Technology Ventures once invested in a company that disclosed that a potential investor had a consulting agreement with the company. This arrangement came to light a few days before financing was closing. This investor was buying stock, as well as receiving stock and cash for consulting services. No other investor had a similar deal.

When the other investors found out about this arrangement, the deal almost collapsed. Had the company made a full disclosure earlier and plained why it made sense for everyone, things would have gone much more smoothly. Unfortunately, a high-value investor bailed out because of this last-minute issue.

SEATTLE/BUSINESS

What if there’s a cloud in your background, such as you started, or worked for, a company that failed? There’s no use in trying to hide this fact because investors will uncover it. It’s also poor form to blame anyone or anything else for its failure, whether the market, other employees, customers, or, in particular, the investors, no matter what the truth actually is.

Our recommendation is that you do a “mea culpa.” That is, you accept as much blame for the failure as is justified and confess your sins. Sophisticated investors find such honesty admirable, and many investors have made boatloads of money with entrepreneurs who failed in previous efforts. What’s important is that you learned from your failures and are eager to try again.

Shut Up, Take Note, Summarize, Regurgitate, and Follow Up

Remember what the venture capitalist was said in the meeting and note if it was noteworthy, but that’s not the point. Shutting up, taking notes, and listening for ways to improve our good things to do in a pitch because even the most minor actions can create a big impression.

The visible act of taking notes says, “we think you’re smart. You’re saying something worth writing down. We’re willing and anxious to learn. We’re conscientious.” Taking notes provides these benefits, plus the value of that information that you’re recording. It can’t get much better than this.

Take Note

Also, at the end of the meeting, summarize what you heard and play it back to make sure you got the correct information. Then follow through within a day on all the promises you made during the pitch, for example, providing additional information.

Rewrite from Scratch

After World War, II many U.S. military Jeeps were given or sold to people in the Philippines. These vehicles, called Jeepneys, were altered by the Filipinos to increase their seating capacity and were decorated with wild colors until they were beautiful but unrecognizable from their original form. Some Jeepneys even made the transition to becoming Mercedes.
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